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Related entities for project bank accounts

If a head contractor decides that they need a project bank account (PBA) for a building contract and enter into a subcontract with a 'related entity', they and the subcontractor may have more compliance obligations.

The related entity provisions in the Building Industry Fairness (Security of Payment) Act 2017 (BIF Act) ensure that:

  • subcontractors working on a building contract are paid through the PBA
  • subcontractors' retentions are protected.

The provisions help head contractors meet PBA requirements.

Note: The related entity provisions don't apply to suppliers.

What is a related entity?

A subcontractor is a related entity for a head contractor if:

  • for individuals: they're members of the same family (see definition below)
  • for an individual/corporation: the individual, or a member of the individual's family, is a majority shareholder, director or secretary of the corporation or a related body corporate of the corporation; or has 50% or more interest in the corporation
  • for an individual and a trustee of a trust: the individual or a related entity under another provision of section 19 is a beneficiary of the trust
  • for corporations: they're related bodies corporate
  • for a corporation and a trustee of a trust: the corporation or a related entity under another provision of section 19 is a beneficiary of the trust
  • for trustees of 2 or more trusts: a person is a beneficiary of both trusts; or a person is a beneficiary of one trust and a related entity under another provision of section 19 is a beneficiary of the other trust
  • the persons acquire interests in a landholding trust and the acquisitions forms evidence, giving effect to or arise from what is substantially one arrangement.
  • the persons acquire interests in a landholding trust and the acquisitions form, evidence, give effect to or arise from what is substantially one arrangement.

'Family' is defined as:

  • the person's spouse
  • a parent of the person or the person's spouse
  • a grandparent of the person or the person's spouse
  • a brother, sister, aunt, uncle, nephew or niece of the person or the person's spouse
  • a child of the person or the person's spouse
  • a grandchild of the person
  • the spouse of any person mentioned in the previous items (except the first item).

For a person, 'spouse' includes a de facto or civil partner.

Head contractor obligations

If a head contractor subcontracts to any person, corporation or entity who is a related entity under the BIF Act, they must complete a S21 notice of related entities form (PDF, 131KB), and provide a copy to the Queensland Building and Construction Commission (QBCC) and the principal for the building contract.

Submit this form within 5 business days of entering into the subcontract with a related entity.

The related entity subcontractor continues to be a beneficiary of the PBA and is paid from that PBA.

If the subcontractor further subcontracts any work, the subcontractor may be required to establish a PBA. If this is the case, the head contractor will need to pay into that PBA, as if it were the principal.

Subcontractor obligations

A subcontractor needs to establish a PBA (separate to the PBA established by the head contractor) if they meet all these criteria:

  • are a first-tier, related entity subcontractor
  • enter into a subcontract with a head contractor
  • further subcontract all or part of the building work (i.e. enter into a second-tier subcontract or a 'sub-sub-contract').

They must comply with all the obligations under the BIF Act and operate the PBA as if they were a head contractor.

This includes:

  • paying all second-tier subcontractors (or sub-sub-contractors) as beneficiaries from the second-tier PBA
  • using payment instructions to make those payments
  • holding subcontractors' retentions in the retention trust account and disputed amounts in the disputed funds trust account where required
  • providing all forms and notifications as required under the BIF Act, including payment instruction information to the head contractor (acting now as principal) and second-tier subcontractors.

The head contractor will make payments to the subcontractor into the general trust account of the second-tier PBA. They may pay themselves from this account according to payment provisions in Chapter 2 of BIF Act.

If you're a subcontractor needing to establish a second-tier PBA, read about the PBA obligations in the Head contractors guidelines (PDF, 981KB).

Also consider

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